Suppose the expected return on the tangent portfolio is 10% and its volatility is 40%. The risk-free rate is 2%. (a) What is the equation of the Capital Market Line (CML)? (b) What is the standard deviation of an efficient portfolio whose expected return of 8%? How would you allocate $1,000 to achieve this position?
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- portfolio.. - Word **** References Mailings Review View Help RCM Acrobat Foxit Reader PDF Foxit PDF 5. The risk-free rate and the expected market rate of return are 0.04 and 0.14, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.25 is equal to: a. 0.004 b. 0.165 C. 0.121 d. 0.132QUESTIONS AND PROBLEMS 1. Assume that the following two-index model describes returns: R=a+b+b212 +e; Assume that the following three portfolios are observed. Portfolio ABC Expected Return 12.0 13.4 12.0 bil b₁₂ 0.5 1 0.2 3 -0.5 3 Find the equation of the plane that must describe equilibrium returns. 111 illustrate the arbitrage opportunities thatQ6-Suppose that the rate of return on investment- free has risk %8 and the expected return rate for the market %14. If the particular stock his given B = 0.60 - What is the expected return rate based on CAPM? -How much the Beta of another stock that has required return 0.20 ?
- Consider the following information: Expected Return Portfolio Risk-free Market A Expected return 10% 15.0 11.2 Alpha Required: a. Calculate the expected return of portfolio A with a beta of 0.6. (Round your answer to 2 decimal places.) Beta 0 1.0 0.6 % b. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) % CheConsider the following information: Portfolio Risk-free Market A Market portfolio Portfolio A Expected Return 10% O Yes O No 18 20 Standard Deviation ex Required: a. Calculate the Sharpe ratios for the market portfolio and portfolio A. (Round your answers to 2 decimal places.) 24 22 Sharpe Ratio b. If the simple CAPM is valid, is the above situation possible?Consider the following information: Portfolio Expected Return Standard Deviation Risk-free 7% 0% Market 11.6 28 A 10.0 17 Required: a. Calculate the Sharpe ratios for the market portfolio and portfolio A. (Round your answers to 2 decimal places.) b. If the simple CAPM is valid, is the above situation possible?
- Qn4: Assume a two-stock portfolio created with $50,000 is invested in both HT and Collections. The expected returns are given below: Calculate the portfolio's return for each state of economy and fill them in the last column, under "Portfolio" (Hint: The portfolio's expected return is a weighted average of the returns of the portfolio's component assets). Calculate the portfolio's expected return (Hint: You have to incorporate the probability distribution of each state of economy). Calculate the portfolio's standard deviation. Economy Recession Below average Average Above average Boom Prob. HT 0.1 -27.0% 0.2 -7.0% 0.4 15.0% 0.2 30.0% 0.1 45.0% Coll 27.0% 13.0% 0.0% -11.0% -21.0% Portfolio- (a) 2 Your answer is partially correct. Try again. What is the average return and standard deviation for each stock? (Round answers to 2 decimal p АВС XYZ Average return 6.00 % 6.25 % Standard deviation 8.90 % 1.55 10.28% SHOW SOLUTION LINK TO TEXT LINK TO TEXT v (b) What is the expected portfolio return on a portfolio comprised of i. 25% ABC and 75% XYZ? ii. 50% ABC and 50% XYZ? (Round answers to 3 decimal places, e.g. 5.275.) E(Portfolio Return) 25% ABC and 75% XYZ 50% ABC and 50% XYZQuestion 7 Consider the following Information: Portfolio ER Risk Free Market SD 6.00 13.2 A 11.2 a. Calculate the Sharpe ratios for the market portfolio and portfolio A Sharpe Ratio=(Return on portfolio-Riskfreerate)/SD Market Portfo 0.2 Portfolio A 0.21 2.1 b. If the simple CAPM is valid, is the above situation possible? 0.00 36 25 Beta Market Beta A
- Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2 0.1 0.9 0.223 A3 0.12 1.1 0.138 A4 0.08 0.8 0.125 Market 0.11 1 0.2 RFR 0.03 0 0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio. a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14 e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14Using the following data: Scenario Probability return K1 return K2 0.2 -10% 5% W2 0.4 0% 30% W3 0.4 20% -5% compute the weights in the portfolio with minimum risk. What are the expected return and risk of this minimum risk portfolio?Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock(b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 Required: 1. Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal investments in stocks P, P2 and P3 2.What are the factor risk exposures for the portfolio? 3.What is the portfolio’s expected return?